Meaning of Accounting

Accounting an Art

Recording , Classifying, Summarising

In a Significant Manner

In terms of money

Transactions & Events

Financial Character

And Interpreting the result thereof

Primary Records & Secondary records

Recording of transactions in Primary records such as Journal , Subsidiary Ledgers

etc

Classifying & Summarising in Secondary Records = General Ledger

Some Events are not recoded in the books .

Not measurable in monetary terms and absence of Financials Characteristics .

Procedure of Accounting

Recording ,Classifying , Summarising , Analysing , Interpreting & Communicating

Recording : Basic function of Accounting and it is done in Primary Records for eg

Journal

Classifying : Secondary Records @ General Ledger Level (Systematic Analysis of

recorded data to Group the transactions or entries of same nature at one place)

Summarising : Preparation and presentation of classified data in manager which is useful

to the Users of Financial statements . This process leads to the preparation of

financial statements .( P&L , Balance Sheet , Cash flow Statements )

Analysing : Classification of data given in the financials statements based on the nature

(For Eg . Operational hip Income , Operational Expenses, General Administrate

Expenses , Current Assets , Current Liabilities , Fixed Assets , Intangible Assets etc )

Interpreting : Explaining the meaning and significance of the relationship as established

by the Analysis of the data.

Communicating : Transmission of Summarised , analysed and Interpreted date to the

end Users of Financial Statements .

Accounting Cycle

Recording of Transactions in the Original Book of Entry

Posting to Ledger

Preparation of TB

Preparation of Final Accounts

Objectives of Accounting

Systematic Recording of transactions ion (Book Keeping , Journal , Ledger & TB 0

Ascertainment of Results of the recorded transactions (P& L)

Ascertainment of financial position of the Company (Balance Sheet )

Provide information to the Users for rational decision making (Financial Reports

including Cash flow )

To know the solvency position (Liquidity / Solvency Position )

(P& L reflecting operational results as on date & Balance Sheet reflecting the

Financial Position as at a particular date . )

Functions of Accounting

Measurement : Past Performance & Current financial position

Forecasting : Forecasting future performance and financial position of the enterprise

using past data.

Decision Making

Comparison and evaluation

Control

Government Regulation and Taxation

Book Keeping Vs. Accounting

Sl No Book Keeping Accounting

1 Process of recording Transactions Summarising the recorded transactions

2 Base for Accounting Language of Business

3 Financial Statements do not form part Financial Statements form part

4 Managerial Decisions cannot Managerial Decisions

5 No Subfield Sub Field 6 Financial Position cannot be ascertained Financial Position can be

ascertained

Subfields of Accounting

Financial Accounting

Management Accounting

Cost Accounting

Social Responsibility Accounting

Human Resource Accounting

ACCOUNTING CONCEPTS ,PRICIPLES AND CONVENTIONS

Accounting is a Language of the business

GAAP: Generally Accepted Accounting Principles: GAAP is the back born of the Accounting

Information System

ACCUNTING CONCEPTS

Assumptions on the basis of which financial statements of a business entity re prepared.

ACCOUNTING PRINCIPLES

Accounting principles are a body of doctrines commonly associated with the theory and

procedures of accounting serving as an explanation of current practice and as a guide for

selection of conventions or procedures where alternatives exists.

They should be based of real assumptions

Simple , understandable and explanatory

Followed consistently

Able to predict future predictions

Informational for the users.

ACCOUNTING CONVENTIONS

Accounting principles adopted by various organisations over a period of time .

CONCEPTS ,PRINCIPLES AND CONVENTIONS – OVERVIEW

Business Entity Concept

Money Measurement Concept

Periodicity Concept

Accrual Concept

Matching Concept

Going Concern Concept

Cost Concept

Realisation Concept

Dual Aspect Concept

Conservatism

Consistency

Materiality